• China lends Nigeria Dollars 2bn in exchange for oil talks. • Ft com site : China oils Nigeria talks with loan

Chinese influence
Yet Nigeria is no longer the preserve of foreign investors from the West. Replete with dollars generated by its booming economy but starved of the hydrocarbons and minerals to feed it, China has sent its state-funded corporations on an investment and construction spree in Africa, seeking privileged access to raw materials in return.
Chinese bidders have secured an $8.3bn project to rebuild the neglected Lagos-Kano railway, as well as agreeing a further $4bn worth of contracts for refineries and power infrastructure in return for oil concessions. Meanwhile, the China Development Bank (CDB) has struck a major deal with Nigeria's United Bank for Africa (UBA) to jointly fund infrastructure projects, with the recent reports suggesting CDB is seeking a $5bn stake in UBA itself.
China is not alone in such state-driven investment and quasi-state development aid. India too has begun to make its presence felt. A deal granting oil exploration blocks to ONGC Mittal Energy in return for rebuilding the Port Harcourt-Kano railway and constructing a coal-fired power station, worth a potential $6bn, has been in place since 2005. Meanwhile, Russia's Gazprom has recently signalled its interest in the country, offering to invest billions of dollars in Nigeria's underdeveloped gas sector.
Contrary to early optimism and rapid progress elsewhere in Africa, however, Chinese-backed infrastructure projects in Nigeria have not progressed smoothly.
Despite fewer scruples, lower labour standards and abundant state subsidies - which have often enabled China's enterprises to prosper where western investors have feared to tread - Beijing's proteges are increasingly running up against the same problems of corruption and politics that have long dogged other investors in Nigeria, a situation they may only overcome through extended negotiations or fresh cash injections. Similarly, ONGC Mittal's project has stumbled amid reports that its acquisition of oil exploration blocks could be re-examined by the energy ministry.
Power struggle
Industrial enterprises, public services and households across Nigeria have long suffered dismal electricity supplies. Inadequate power affects all aspects of life, from basic water supplies, to the functionality of schools and clinics, to transport safety.
The government has injected $10bn into the construction of new generating plants since 2000, but corruption and management failure in the National Electric Power Authority - now reconstituted as the Power Holding Company of Nigeria (PHCN) - repeatedly thwarted former president Obasanjo's ambitions to boost Nigeria's available generation capacity from a lowly 1750 mega watt (MW) to 10,000MW during his eight-year rule. By the end of his tenure, it had reached 3500MW, enough for each Nigerian to light a dim 25 watt bulb at best.
Independent thinking
The problem is still so acute that construction projects of all kinds routinely incorporate independent power supplies into their design from the outset. Meanwhile, blackouts remain a daily feature of Nigerian towns, with grid outages countered piecemeal by the widespread use of private diesel generators and open fires, which in turn contributes to chronic air pollution in urban areas. Ironically, all the while Nigeria continues to flare enough gas to power half of Africa.
Little is known about the country's total energy requirement, yet generation capacity is incontrovertibly deficient and poorly maintained. The transmission system, besides being radial and unable to support more than 5000MW, suffers from poor planning and weak dispatch and control systems. Meanwhile, distribution systems are typically worn out and subject to high levels of power theft.
In reserving the portfolio of energy minister for himself, Mr Yar'Adua has signalled his intention to tackle the power crisis head-on, including related gas supply issues. The government acknowledges that the task will require huge foreign investment to complement its own efforts. On the positive side, unbundling the PHCN is already under way, with the Indian Power Grid Corporation lined up to take over transmission responsibilities.
While the Federal Government concentrates on resuscitating the conventional power infrastructure, state and local governments will be charged with expanding rural access to electricity using non-conventional sources: solar, wind, biomass and mini-hydro. Wind mapping around the country suggests that wind farms in the megawatt class are viable and several pilot projects are planned to prove the concept and encourage emulation by private investors.
Yet no quick transformation of the sector looks likely, not least because of the ongoing absence of a co-ordinated strategy and the apparent lack of commitment to thoroughgoing reform. Among the knottiest of issues deterring investors is the absence of an adequate tariff model to enable the transition from heavily subsidised public utilities to unsubsidised commercial operations.
As this would shift the burden of pain increasingly onto the shoulders of consumers, the government has been reluctant to bite this particular bullet. Unsurprisingly, corruption also continues to be a stumbling block. Nigerians, however, remain optimistic. A recent poll showed that 57% thought President Yar'Adua would deliver on his promise of 10,000MW of new generation capacity by March 2009.
Mobile population
With about 1.7 million fixed-line and 33 million mobile telephones in use, Nigeria has an overall teledensity of 25%. Nigeria Telecommunications (Nitel), the country's monopoly fixed-line provider until 2002, had a miserable reputation before its part privatisation, having installed a mere 720,000 lines - one-third of them still analogue - to serve a population of 140 million. Competition tripled the number of fixed-line subscribers within six years, but ample opportunities for further expansion and modernisation remain. Several mobile telephone companies operate nationally, exploiting the manifest shortcomings of the fixed-line network.
The purchase of a 51% stake in Nitel and its mobile arm MTel by Transnational Corporation (Transcorp) in 2006, with the associated promise of a technical partnership with the UK's BT and substantial new investment, held considerable hope for the future. But since the deal with BT fell through, various reports have suggested that privatisation might be reversed, although the government insists that Transcorp will retain its 51% stake until a new core- investor is found. The affair has nevertheless led some to question the robustness of the government's commitment to reform.
By the end of 2007, Nigeria had nearly 2000 internet service providers and more than eight million end-users. Although this is the highest in Africa, representing more than 18% of users on the continent, internet density is relatively poor at only 5.9%, compared with 7.5% in Kenya, 9.9% in Zimbabwe and 11.6% in South Africa. Besides better information flows and access to education, internet access may tend to underwrite transparency and ameliorate corruption through automating payments due to state bodies, and thereby avoiding depredation by intermediary officials.
Road blocks
In the absence of adequate alternatives, Nigeria's roads carry about 95% of all freight and passenger traffic. Most are unpaved and were never designed for the capacities they now carry. They are consequently crumbling, slow and dangerous. Since 2004, the Federal Road Maintenance Agency (Ferma) has been undertaking an urgent roads rehabilitation programme.
In 2008, Ferma will receive $600m in addition to its annual $350m road- maintenance budget to prevent what it describes as an "imminent collapse" of Nigeria's road infrastructure. The extra money will allow some 3500 kilometres (km) of roads to be upgraded annually, with the entire federal roads network scheduled for attention over the next eight to 10 years.
The sector continues to suffer from weak strategic planning, while value for money from competitive private sector tendering has been compromised by dubious contracting procedures and inadequate quality control. Attempts to address these problems have not been rigorous, although the government's recent indication of its willingness to consider road pricing schemes might attract a new round of foreign investment.
Nigeria's rail system comprises some 3500km of mostly 3 foot 6 inrack, with main lines running inland from Lagos and Port Harcourt to Kaduna, Kano, Kaura Namoda, Nguru and Maiduguri. The network has been plagued by decades of under-funding and poor maintenance.
Under President Obasanjo, the government took major steps towards rehabilitating the existing network, offering investors 25- to 30-year concessions for operating sectors of the system. Most importantly, the China Civil Engineering Construction Corporation has been contracted to modernise 1300km of the decrepit western region. Similarly, ONGC Mittal will upgrade a large section of the eastern region. In an attempt to move freight more efficiently, both domestically and internationally, inland container depots serving extensive hinterlands will be built at Ibadan, Jos, Abia, Kano, Maiduguri and Funtua.
Investment in new rail lines has also been sought. China's Guangdong Xinguang International Group plans to invest an initial $2bn in building a high-speed railway between Lagos and Abuja. Another high-speed rail line is planned across the eastern Niger delta, linking Port Harcourt and Yenegoa, the capital of Bayelsa state. Meanwhile, the long-planned extension of the central region's standard gauge line to an expanded port at Warri would dramatically increase freight and passenger capacities in the densely populated south.
Water solution
Waterways have also long been an important part of Nigeria's infrastructure, particularly in the south, where the Niger and Benue rivers constitute the main arteries of 8600km of navigable rivers and creeks, although much of it impassable during the dry season. Coastal shipping is also significant. In order to relieve congestion on the overburdened road system, the government has invested heavily in the construction of small ports and jetties along the waterways. Major ports at Lagos, Port Harcourt and Calabar handle most international trade. To attract investment for upgrading outdated facilities, the Nigerian Ports Authority has offered operating concessions to the private sector.
Emerging from turmoil
Nigeria boasts 22 major airports, four of which (Lagos, Kano, Abuja and Port Harcourt) handle international flights, while a further 50 smaller airfields serve outlying districts. Passenger traffic has more than doubled since 2000. However, the country's aviation industry is only slowly emerging from a decade of turmoil in which undercapitalisation and corruption led to safety compromises and infrastructure deterioration. During 2005 and 2006, three domestic aeroplane crashes killed more than 300 people, exposing what one industry insider called "systemic failures".
In response to these shortcomings, the government has ploughed $150m into overhauling runways, navigational systems and other infrastructure and mandated the recapitalisation of all airlines by 2007, leaving the country with 10 operators. Internationally, most hopes rest with Virgin Nigeria Airways (VNA), a joint-venture between Nigerian institutions and London-based Virgin Airways.
This new national carrier has rapidly developed a network of domestic and west African regional routes connecting with its long-haul flights. However, VNA's strategy of developing Lagos as a hub for west Africa - a key dimension of its establishment and ongoing profitability - has been set back by the government's insistence that the airline divides its domestic and international operations between twt. Successive Nigerian administration's have proved themselves adept at convening committees, analysing problems and promulgating grand strategies; but much less so at instigating effective action in the face of vested interests.
The willingness of Mr Yar'Adua's government to square up to corruption, both within its own ranks and beyond, could well make the difference between success and failure for its ambitious, much-needed and globally backed infrastructure programmes.
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Document BKNA000020080402e44100051
The Banker: Supplement: Nigeria - Nigeria Ready To Blossom Nigeria - Over The Past Decade, The Word 'potential' Has Become Synonymous With Nigeria, As The Resource-rich Nation's Progress Has Been Stymied By Political And Economic Instability. Much Progress Has Been M.
CHARLIE CORBETT

1,438 words

1 April 2008

The Banker

BKNA

English

(c) 2008 The Banker
In October 2007, Patricia Ettah, the speaker at Nigeria's House of Representatives, was forced to step down. Her resignation followed revelations that she had spent millions of naira refurbishing her official residences and buying cars.
The incident was seen at the time as an embarrassment for president Umaru Yar'Adua, who has sworn to fight corruption in Nigeria at every level. According to OB Sisay, analyst and deputy head of the Africa division at political risk specialist Exclusive Analysis, in previous times this case would not even have been discussed by parliament. Mr Sisay believes Ms Ettah's forced resignation is proof of a psychological shift that has taken place in Nigeria: "There is a growing sense within the Nigerian leadership, and also within the population, that democracy, reform and fiscal probity are desirable. There seems to be a lot less tolerance for the sort of carte blanche corruption that existed before."
Perceptions of Nigeria are shifting as political stability becomes assured, the economy grows and its banking sector matures. Mr Yar'Adua has cemented his position as head of state by defeating a petition by opposition leaders to have his election declared null and void. The country's foreign reserves have topped $55bn and the price of oil, Nigeria's biggest export, was above $100 per barrel at the time of writing. Add to this mix a forecast gross domestic product growth of 9% for 2008 and a debt free external balance sheet, and then Nigeria's prospects increase further.
A stable political and economic background meant the capital markets took off in Nigeria in 2007. Most local banks tapped into the market last year, both at home and abroad. Alexander von Sponeck, head of CEEMEA debt capital markets at Merrill Lynch, says: "Investors are taking advantage of a desire to get access to short-term local currency naira risk, because local currency has been appreciating and people like the naira story with the backdrop on oil, the banking sector and the real estate market."
Many feel that deal volumes in 2008 will not come anywhere near to matching those of last year. Emeka Emuwa, chief executive of Citi-owned Nigeria International Bank, believes the banks have raised pretty much all the capital they intend to raise. He says: "There are still a few issues in the pipeline, but beyond that I don't see the same spate of issues that there were over the past two years. The objective now is to apply that capital... and deliver the kind of return that shareholders expect."
Infrastructure opportunities
In terms of investment opportunities within Nigeria for domestic banks, the potential is great. The nation's infrastructure needs are phenomenal and the increased scale of most banks also means that for the first time they have the requisite scale to participate in the booming oil and gas industry.
The government's drive to assist Nigeria's private sector in improving the nation's infrastructure will also help. Public-private partnerships (PPPs) will be a key element towards achieving this goal. However, there are constraints. One investment specialist says: "Project financing is a high- skill area and totally alien to most of the Nigerian banking sector. It is also something that requires a strong regulatory framework, particularly if you are talking about PPPs."
The debacle over the federal government's 2006 sale of Nigerian Telecom to Transnational Corporation of Nigeria (Transcorp) was one example of the difficulties inherent in home-grown PPP arrangements. After little more than one year of ownership, Transcorp was forced to divest its stake by the federal government for failing to perform.
In terms of critical infrastructure, the federal government has a mountain to climb. According to a recent report by a British parliamentary fact- finding group, which toured the country in November, chronic power shortages meant that the country was operating at just 23% of its manufacturing capacity. Nigeria's power shortage is the single largest hindrance to economic growth that the nation faces. It permeates every aspect of Nigerian society, blackouts are a feature of everyday life.
The power shortage is ironic when one considers that Nigeria is the 11th biggest exporter of oil in the world, the biggest in Africa, and if it harnesses its gas supplies it could provide enormous amounts of energy. As it stands, however, Nigeria's power industry is producing less than 4000 megawatts (MW) of electricity - in a country that needs up to 25,000MW.
Although MrYar'Adua has ambitious plans to boost capacity to 6000MW within 18 months, history suggests that this will be difficult to put into practice. Mr Yar'Adua's predecessor, Olusegun Obasanjo, spent an estimated $10bn on power between 2000 and 2007 with little effect. The nickname for Nigeria's former national power utility, the National Electric Power Authority, used to be 'Never Expect Power Always'. The name of that entity might have changed to the Power Holding Company of Nigeria, but the government will have to work to alter its reputation.
Enter the dragon
The influence of China on Nigeria's future cannot be underestimated. According to the latest figures from the Nigerian Business Information Council, Chinese investment in Nigeria totals more than $10bn. Garba A Zakari, minister of trade at the Nigerian High Commission in London, says: "China is growing even bigger here now. It is getting involved in railway development and oil exploration. A few years back, the highest investment was just a billion [dollars]... China has long-term investment proposals and initiatives in Nigeria."
Proof, if it were needed, of China's commitment to investing in Nigeria came last year when China Development Bank (CDB) announced that it had entered into a partnership with Lagos-based United Bank for Africa (UBA). The deal, which could involve a CDB investment of up to $5bn in UBA, will expand the Chinese bank's ability to finance infrastructure projects in Africa.
As The Banker was going to press, China's largest commercial bank, Industrial and Commercial Bank of China (ICBC), had agreed a deal with Nigeria's Oceanic Bank to partner it in export and trade finance. The announcement came just months after ICBC completed its purchase of 20% of South Africa's Standard Bank for $5.56bn. Chinese interest in Nigeria is unlikely to go away. Its underdeveloped mineral wealth and huge oil-generating capacity are of major importance to the Chinese economy, which is ravenous for commodities.
Long-term strategy
Chinese investment will go a long way in enhancing the progress that Nigeria's banking sector has already made in transforming itself. However, the banks must be careful not to get carried away. Although opportunities lie in infrastructure investment, as well as in oil and gas, it is a long-term strategy and shareholders will demand returns in the short term.
With a booming Nigerian Stock Exchange (NSE), that returned more than 70% to investors in 2007, there is a temptation for some banks to boost profits by margin trading on the back of positive sentiment. This could lead to a bubble. According to some estimates, as many as 8.6 million people in Nigeria hold some bank equity but they have very few other assets that they can invest in. One Lagos-based investor says that the level of equity market interest could outstrip the ability of the broader economy to grow at the same speed: "Investing in property is difficult and there are a lot of restrictions to investing in small business. Yields on government securities have been compressed over the past two to three years, so if you want serious inflation-adjusted returns, the equity market is your only option," he says. "The NSE has the potential to become something of an asset price bubble if alternative assets and deeper real economy investment doesn't grow quickly to absorb more of the liquidity that will come into the system."
As to the future, Nigeria, in many ways, resembles a blank canvass. It has huge resources, both physically and financially, it is just a matter of putting them to effective use. Merrill Lynch's Alexander von Sponeck says: "They have the brains, the people, the energy and the entrepreneurial spirit. They have everything, but it is just spending money on getting the technology and the basic infrastructure right that will make Nigeria blossom."
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Document BKNA000020080402e4410004w

China to Invest Over N1 Trillion in Country - FG
286 words

31 March 2008

01:48 PM

All Africa

AFNWS

English

(c) 2008 AllAfrica, All Rights Reserved
Lagos, Mar 31, 2008 (This Day/All Africa Global Media via COMTEX) -- The Federal Government said yesterday in Abuja that the Chinese government has signed agreements with Nigeria to invest over N1 trillion to buoy the country's economy.
The Minister of Finance, Dr Samshudeen Usman, said that about N340 billion (US 2 billion dollars) agreement was signed as concessionary